New report finds shadow banking sector has grown three-fold in 10 years

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Shadow Banking Industry

For agencies investing in money-market funds and other shadow banking investments, a task force of the world’s top economies is pushing for more regulations. Risk assessment software, especially customizable software, will help those involved with shadow banking stay compliant.

The report by the Financial Stability Board found that the shadow economy has grown to three times what it was 10 years ago, and was globally worth about $67 trillion at the end of 2011. Compared to other major economies, shadow banking of the United States is larger than that of the European Union and Britain.

Since the shadow banking sector exists to avoid the costs of regulated banks, the amount of risk is hidden as well, and since banks often provide credit to the non-banks making investments in the shadow-banking industry, a downfall of the shadow economy can have a large effect on the economy as a whole.

Money-market funds (MMF) are some of the most common tools used by the shadow banking sector. In the case of the financial crisis of 2008, the Reserve Primary Fund invested heavily in Lehman Brothers when the investment bank declared bankruptcy. The money-market fund then fell below $1 a share, causing a panic and “run” on money-market funds. Since MMFs are not backed by the FDIC, being aware of risky investments is especially important.

The Financial Stability Board created five areas that new regulations of the shadow market need to cover, including decreasing the likelihood of “bank runs” in money market funds, assessing the risks made by shadow banking entities, and the need to “mitigate the spill-over effect between the regular banking system and the shadow banking system.”

If more regulations are put into place in the United States, those involved with the shadow banking sector will likely need to be both more aware of the risk of their investments and may need to decrease amount of risk they currently hold. With credit and risk management tools, shadow bankers will be better able to comply.[:fr]

For agencies investing in money-market funds and other shadow banking investments, a task force of the world's top economies is pushing for more regulations. Risk assessment software, especially customizable software, will help those involved with shadow banking stay compliant.

The report by the Financial Stability Board found that the shadow economy has grown to three times what it was 10 years ago, and was globally worth about $67 trillion at the end of 2011. Compared to other major economies, shadow banking of the United States is larger than that of the European Union and Britain.

Since the shadow banking sector exists to avoid the costs of regulated banks, the amount of risk is hidden as well, and since banks often provide credit to the non-banks making investments in the shadow-banking industry, a downfall of the shadow economy can have a large effect on the economy as a whole.

Money-market funds (MMF) are some of the most common tools used by the shadow banking sector. In the case of the financial crisis of 2008, the Reserve Primary Fund invested heavily in Lehman Brothers when the investment bank declared bankruptcy. The money-market fund then fell below $1 a share, causing a panic and "run" on money-market funds. Since MMFs are not backed by the FDIC, being aware of risky investments is especially important.

The Financial Stability Board created five areas that new regulations of the shadow market need to cover, including decreasing the likelihood of "bank runs" in money market funds, assessing the risks made by shadow banking entities, and the need to "mitigate the spill-over effect between the regular banking system and the shadow banking system."

If more regulations are put into place in the United States, those involved with the shadow banking sector will likely need to be both more aware of the risk of their investments and may need to decrease amount of risk they currently hold. With credit and risk management tools, shadow bankers will be better able to comply.  

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For agencies investing in money-market funds and other shadow banking investments, a task force of the world's top economies is pushing for more regulations. Risk assessment software, especially customizable software, will help those involved with shadow banking stay compliant.

The report by the Financial Stability Board found that the shadow economy has grown to three times what it was 10 years ago, and was globally worth about $67 trillion at the end of 2011. Compared to other major economies, shadow banking of the United States is larger than that of the European Union and Britain.

Since the shadow banking sector exists to avoid the costs of regulated banks, the amount of risk is hidden as well, and since banks often provide credit to the non-banks making investments in the shadow-banking industry, a downfall of the shadow economy can have a large effect on the economy as a whole.

Money-market funds (MMF) are some of the most common tools used by the shadow banking sector. In the case of the financial crisis of 2008, the Reserve Primary Fund invested heavily in Lehman Brothers when the investment bank declared bankruptcy. The money-market fund then fell below $1 a share, causing a panic and "run" on money-market funds. Since MMFs are not backed by the FDIC, being aware of risky investments is especially important.

The Financial Stability Board created five areas that new regulations of the shadow market need to cover, including decreasing the likelihood of "bank runs" in money market funds, assessing the risks made by shadow banking entities, and the need to "mitigate the spill-over effect between the regular banking system and the shadow banking system."

If more regulations are put into place in the United States, those involved with the shadow banking sector will likely need to be both more aware of the risk of their investments and may need to decrease amount of risk they currently hold. With credit and risk management tools, shadow bankers will be better able to comply.  

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For agencies investing in money-market funds and other shadow banking investments, a task force of the world's top economies is pushing for more regulations. Risk assessment software, especially customizable software, will help those involved with shadow banking stay compliant.

The report by the Financial Stability Board found that the shadow economy has grown to three times what it was 10 years ago, and was globally worth about $67 trillion at the end of 2011. Compared to other major economies, shadow banking of the United States is larger than that of the European Union and Britain.

Since the shadow banking sector exists to avoid the costs of regulated banks, the amount of risk is hidden as well, and since banks often provide credit to the non-banks making investments in the shadow-banking industry, a downfall of the shadow economy can have a large effect on the economy as a whole.

Money-market funds (MMF) are some of the most common tools used by the shadow banking sector. In the case of the financial crisis of 2008, the Reserve Primary Fund invested heavily in Lehman Brothers when the investment bank declared bankruptcy. The money-market fund then fell below $1 a share, causing a panic and "run" on money-market funds. Since MMFs are not backed by the FDIC, being aware of risky investments is especially important.

The Financial Stability Board created five areas that new regulations of the shadow market need to cover, including decreasing the likelihood of "bank runs" in money market funds, assessing the risks made by shadow banking entities, and the need to "mitigate the spill-over effect between the regular banking system and the shadow banking system."

If more regulations are put into place in the United States, those involved with the shadow banking sector will likely need to be both more aware of the risk of their investments and may need to decrease amount of risk they currently hold. With credit and risk management tools, shadow bankers will be better able to comply.  

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For agencies investing in money-market funds and other shadow banking investments, a task force of the world's top economies is pushing for more regulations. Risk assessment software, especially customizable software, will help those involved with shadow banking stay compliant.

The report by the Financial Stability Board found that the shadow economy has grown to three times what it was 10 years ago, and was globally worth about $67 trillion at the end of 2011. Compared to other major economies, shadow banking of the United States is larger than that of the European Union and Britain.

Since the shadow banking sector exists to avoid the costs of regulated banks, the amount of risk is hidden as well, and since banks often provide credit to the non-banks making investments in the shadow-banking industry, a downfall of the shadow economy can have a large effect on the economy as a whole.

Money-market funds (MMF) are some of the most common tools used by the shadow banking sector. In the case of the financial crisis of 2008, the Reserve Primary Fund invested heavily in Lehman Brothers when the investment bank declared bankruptcy. The money-market fund then fell below $1 a share, causing a panic and "run" on money-market funds. Since MMFs are not backed by the FDIC, being aware of risky investments is especially important.

The Financial Stability Board created five areas that new regulations of the shadow market need to cover, including decreasing the likelihood of "bank runs" in money market funds, assessing the risks made by shadow banking entities, and the need to "mitigate the spill-over effect between the regular banking system and the shadow banking system."

If more regulations are put into place in the United States, those involved with the shadow banking sector will likely need to be both more aware of the risk of their investments and may need to decrease amount of risk they currently hold. With credit and risk management tools, shadow bankers will be better able to comply.  

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